Setting up Due Diligence

Setting up Due Diligence

October 8, 2021 by investor

 In running an angel network, it’s important to set up a due diligence process.

Diligence can take a substantial amount of time, so there needs to be a prescribed process for the members to follow.

The process needs to be led by those with experience in diligence and startup investing.

It starts with gathering core documents such as historical financial statements, patent filings, entity filings, and other relevant documents.

There’s a quantitative aspect to diligence to verify what you think you know about the business.  

For example, if the company claims to have a Delaware Corporation, then there should be documentation confirming that.

There’s also a qualitative aspect to diligence such as assessing the skills of the team.

This requires interviewing the team members, the business goals, and then making a judgement call about the skills required.

Someone needs to lead the diligence.

It could be the manager of the group or a member who is particularly knowledgeable about the sector.

Some groups use university students for the analysis phase of the process.

Members often tap contacts who are domain experts to review the technology or the business model. 

The diligence team compiles a report with the findings and recommendations to provide to the rest of the group.

Findings from the diligence process often impact the valuation and terms used in the term sheet.

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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.

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